The two companies join a growing list of Western brands that have fallen casualty in China. ASOS, Topshop, and New Look have also left China, among others.
The next retailer that looks to be in trouble is fast-fashion titan H&M. Despite over 400 stores in mainland China alone and a notable online presence, the Swedish retailer suddenly found itself wiped off major online shopping sites such as Taobao, JD.com, and Pinduoduo after being critical of the Chinese government. Its app was delisted as well.
Poor sales led to the brand’s profits in China falling 23 percent, year on year, during Q2 of 2021 – a staggering loss of $74 million. As a result, H&M shuttered more than 20 physical locations last year. Plagued by cancel culture and rising local competitors, H&M no longer has the hold on China it once did.
If a mega brand like H&M can be so easily threatened, what does this mean for other Western retailers in the market?
H&M’s political missteps
A huge factor in H&M’s downfall in China was its denouncement of forced labour in Xinjiang cotton production and criticism of the Chinese government’s treatment of the Uyghur ethnic group.The brand’s statements about the alleged labour abuse involving Muslim Uyghurs triggered an uproar among Chinese shoppers. A boycott was swiftly put into place and China, which was previously H&M’s fifth-largest market in Q1 of 2021, fell out of the top 10 by the next quarter. Nearly a year later, sales have yet to fully recover. The most recent quarter’s report showed sales have reduced by 41 per cent.
Sweden’s cold relations with China have not helped the situation. Unlike many foreign companies that operate in China, H&M has been reluctant to build a relationship with the Chinese Communist Party – an important factor in building a successful business in that country. Moreover, the company does not pay enough in taxes for local authorities to value it highly.
Despite the setbacks, H&M insists that China remains a priority for it. The CEO of H&M, Helena Helmersson, said, “China is a very important market to us and our long-term commitment to the country remains strong,” and that the company is “dedicated to regaining the trust and confidence of our customers, colleagues, and business partners in China”.
Overall, China accounts for about 3 per cent of H&M’s sales and has the second-most physical H&M stores of any country. China also supplies and manufactures more than a third of H&M’s products, making it central to the company’s supply chain.
Nationalism shifts spotlight to homegrown brands
The pandemic has also made China a tougher market for Western brands. The travel ban and China’s ongoing waves of micro lockdowns have inspired local customers to turn inward. Shifting consumer preferences among younger Chinese shoppers indicate a stronger appetite for domestic brands.
A survey by PwC consulting group last year showed 37 per cent of respondents preferred to buy from domestic brands, while only 24 per cent said they would rather buy from foreign brands.
“The nationwide trend to embrace domestic brands, known as Guochao, has become a strong emotional catalyst for boosting the popularity of local consumer names Hey Tea [drinks], Bosideng [clothing], BYD [new energy vehicles], Li-Ning and Anta [sportswear], among others,” PwC wrote.
As locals abandon Western brands like Nike and Adidas, which both also faced a backlash due to criticisms over Xinjiang cotton, Hong Kong-based sportswear brand Anta has experienced a massive boost in interest in the past two years.
The up-and-coming brand is already projected to be China’s biggest sportswear export. Anta’s involvement in the NBA and collaborations with basketball players Klay Thompson, Kevin Garnett, and Luis Scola have propelled the brand to new heights.
Anta’s share price increased by 157 per cent from 2020 to 2021, raising the brand’s market value to $US64 billion. Adidas, which is currently the second highest valued sportswear company in the world, is valued at $US74.4 billion – a mere $US10 billion difference. Should Anta continue its success, it will soon overtake Adidas and trail only Nike.
The brand cites its affordable price points and growing local support for its success. In the long term, Anta is betting on China’s patriotism converting to brand loyalty, as it hopes to grab even more of the market share formerly taken by Nike and Adidas.
Another Chinese local sportswear brand, Li-Ning, has also benefited from China’s patriotism. Last year, Li-Ning’s kidswear diffusion line, Li-Ning Young, was marketed as the “fashionable professional sports kidswear brand originating in China”, to capitalise on rising nationalistic pride. The brand reported 56 per cent growth in sales across all segments – apparel, footwear, and equipment/accessories – and reached annual revenue of RMB22.6 billion ($US4.7 billion) in 2021.
Regaining China’s trust
For Western brands that have fallen out of favour, getting back into the Chinese’s good graces will not be easy – but they are making efforts. Nike and Adidas are attempting to tap into local support by sponsoring national basketball and athletics teams, in alignment with the government’s renewed post-pandemic focus on sports and health. They are also making investments in state-run sport partnerships.
H&M’s comeback, however, is a little more complicated. In addition to the controversy, the brand is facing the rise of local fashion brands as well. Affordable online marketplace Taobao, which has been likened to Amazon, places the Swedish brand in direct competition with cheaper, trendier competitors that are specifically designed for Chinese preferences.
“With regards to China, the situation remains complex,” Helmersson said during a recent earnings call.
During the Henan floods last July, H&M pledged RMB1 million ($US209,212) to a local charity to help with flood relief, issuing a message that read: “All Chinese staff of H&M want to pay tribute to rescuers on the frontline” on its Weibo account. Despite its efforts, the response online remained lukewarm, as users left negative comments like, “Thanks for the donation, but we still won’t buy [your products].”
H&M owner Hennes & Mauritz AB, now trying a different approach, has chosen to launch its mid-market subsidiaries in China for the first time. In late 2021, & Other Stories and ARKET were piloted on Tmall, and attracted more than 1 million and 256,000 fans, respectively. The warm response led to new physical store openings in Beijing and Shanghai last fall.
But it is still too early to declare H&M’s mid-market experiment a success. “There are reports that some consumers still turned their back to the two brands, having found their link to H&M, which shows the brand still hasn’t been fully forgiven by Chinese consumers,” said Arnold Ma of China-focused digital marketing agency Qumin.